John Sfakianakis, chief economist at Banque Saudi Fransi, also chief economist, Middle East and North Africa, for Crédit Agricole CIB, recently spoke to WealthBriefing about his concerns over political risks at the sidelines of a Middle East-themed conference held at the London Business School.

The stakes are high as the Middle East population of high net worth individuals, for example, together held an estimated $1.5 trillion in 2009 (source: Merrill Lynch/Capgemini); it is fair to assume a fair chunk of this wealth is held by the wealthiest individuals. (As an aside, while he is supremely rich at £12.2 billion ($20 billion) in the Sunday Times Rich List for 2011, Prince Alwaleed stands at 29th in that list, the highest Middle East person, some way behind magnates from countries such as the US, Germany and France). There are an estimated 0.4 million HNW individuals in the Middle East.

Sfakianakis said the risk of ultra high net worth families and states repatriating some money from Western markets cannot be ruled out in the medium term, even though at present the risks are for an exodus of capital from the MENA region. He also warned that some wealth management firms may feel the pinch if harder questions are asked about where some of their money comes from. 

Source of wealth

His comments come at a time when Middle East investors are regularly cited by firms such as Knight Frank, the property firm, as important buyers of property in cities such as London, for example. London is also a key wealth booking centre for Middle East-sourced wealth.

But although the current high price of oil – around $114 per barrel as at the time of this publication going to press – has filled the coffers of governments and wealthy energy magnates in the Gulf and elsewhere, the political eruptions in countries such as Egypt, Bahrain, Syria and Tunisia have raised question marks. And in Saudi Arabia, seen as vital as a major oil producer, the risks of domestic upheaval linger in the back of investors’ minds.

New uncertainties have arisen.

“The biggest concern is that wealthy families will have to re-think the longevity and viability of the political model they are living and working in, be it in the country that has already witnessed this 'Arab Spring' or in countries where it might yet happen,” said Sfakianakis, a regular television commentator.

“The same goes for investors who want to invest in the Middle East but who are uncertain and apprehensive about the politics and the relationship between political entities and businessmen,” he continued.

“We would never have expected in Saudi Arabia that the king would announce all these measures that were related to the Arab Spring changes. They are trying to address grievances in their states, and that has raised political risks,” he said, referring to the Saudi monarchy’s moves to head off protests by promising to give $37 billion in "benefits", as described by media reports.

“What happened in Egypt and Tunisia is pretty instrumental; certain members of the political elite were put in jail and are awaiting trial; also affected is the business elite. That raises questions of whom you do business with.”

Sfakianakis said it was a good question as to what may happen with Middle East money invested in the West if there are needs for that money to be repatriated. For instance, it could affect the value of the US dollar, he said.  

“In a lot of these political leaders have sent money abroad with the knowledge and acquiescence of bankers who receive the money,” he said.

“The wealth management business will not run out of business but will be impacted if it starts asking questions about whose money this is.”